Monday, May 20, 2013

Don't say you weren't warned. This is Paul Krugman, just a few days under 10
years ago:

Stating the Obvious,
by Paul Krugman, Commentary, NY Times, May 27, 2003: "The lunatics are now in charge
of the asylum." So wrote the normally staid Financial Times, traditionally
the voice of solid British business opinion, when surveying last week's tax
bill. Indeed, the legislation is doubly absurd: the gimmicks used to make an
$800-billion-plus tax cut carry an official price tag of only $320 billion
are a joke, yet the cost without the gimmicks is so large that the nation
can't possibly afford it while keeping its other promises.

But then maybe that's the point. The Financial Times suggests that "more
extreme Republicans" actually want a fiscal train wreck: "Proposing to slash
federal spending, particularly on social programs, is a tricky electoral
proposition, but a fiscal crisis offers the tantalizing prospect of forcing
such cuts through the back door."

Good for The Financial Times. It seems that stating the obvious has now,
finally, become respectable.

It's no secret that right-wing ideologues want to abolish programs Americans
take for granted. But not long ago, to suggest that the Bush
administration's policies might actually be driven by those ideologues —
that the administration was deliberately setting the country up for a fiscal
crisis in which popular social programs could be sharply cut — was to be
accused of spouting conspiracy theories.

Yet by pushing through another huge tax cut in the face of record deficits,
the administration clearly demonstrates either that it is completely
feckless, or that it actually wants a fiscal crisis. (Or maybe both.)

Here's one way to look at the situation: Although you wouldn't know it from
the rhetoric, federal taxes are already historically low as a share of
G.D.P. Once the new round of cuts takes effect, federal taxes will be lower
than their average during the Eisenhower administration. How, then, can the
government pay for Medicare and Medicaid — which didn't exist in the 1950's
— and Social Security, which will become far more expensive as the
population ages? (Defense spending has fallen compared with the economy, but
not that much, and it's on the rise again.)

The answer is that it can't. The government can borrow to make up the
difference as long as investors remain in denial, unable to believe that the
world's only superpower is turning into a banana republic. But at some point
bond markets will balk — they won't lend money to a government, even that of
the United States, if that government's debt is growing faster than its
revenues and there is no plausible story about how the budget will
eventually come under control.

At that point, either taxes will go up again, or programs that have become
fundamental to the American way of life will be gutted. We can be sure that
the right will do whatever it takes to preserve the Bush tax cuts — right
now the administration is even skimping on homeland security to save a few
dollars here and there. But balancing the books without tax increases will
require deep cuts where the money is: that is, in Medicaid, Medicare and
Social Security.

The pain of these benefit cuts will fall on the middle class and the poor,
while the tax cuts overwhelmingly favor the rich. For example, the tax cut
passed last week will raise the after-tax income of most people by less than
1 percent — not nearly enough to compensate them for the loss of benefits.
But people with incomes over $1 million per year will, on average, see their
after-tax income rise 4.4 percent.

The Financial Times suggests this is deliberate (and I agree): "For them,"
it says of those extreme Republicans, "undermining the multilateral
international order is not enough; long-held views on income distribution
also require radical revision."

How can this be happening? Most people, even most liberals, are complacent.
They don't realize how dire the fiscal outlook really is, and they don't
read what the ideologues write. They imagine that the Bush administration,
like the Reagan administration, will modify our system only at the edges,
that it won't destroy the social safety net built up over the past 70 years.

But the people now running America aren't conservatives: they're radicals
who want to do away with the social and economic system we have, and the
fiscal crisis they are concocting may give them the excuse they need. The
Financial Times, it seems, now understands what's going on, but when will
the public wake up?

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Vintage Krugman: Stating the Obvious

Don't say you weren't warned. This is Paul Krugman, just a few days under 10
years ago:

Stating the Obvious,
by Paul Krugman, Commentary, NY Times, May 27, 2003: "The lunatics are now in charge
of the asylum." So wrote the normally staid Financial Times, traditionally
the voice of solid British business opinion, when surveying last week's tax
bill. Indeed, the legislation is doubly absurd: the gimmicks used to make an
$800-billion-plus tax cut carry an official price tag of only $320 billion
are a joke, yet the cost without the gimmicks is so large that the nation
can't possibly afford it while keeping its other promises.

But then maybe that's the point. The Financial Times suggests that "more
extreme Republicans" actually want a fiscal train wreck: "Proposing to slash
federal spending, particularly on social programs, is a tricky electoral
proposition, but a fiscal crisis offers the tantalizing prospect of forcing
such cuts through the back door."

Good for The Financial Times. It seems that stating the obvious has now,
finally, become respectable.

It's no secret that right-wing ideologues want to abolish programs Americans
take for granted. But not long ago, to suggest that the Bush
administration's policies might actually be driven by those ideologues —
that the administration was deliberately setting the country up for a fiscal
crisis in which popular social programs could be sharply cut — was to be
accused of spouting conspiracy theories.

Yet by pushing through another huge tax cut in the face of record deficits,
the administration clearly demonstrates either that it is completely
feckless, or that it actually wants a fiscal crisis. (Or maybe both.)

Here's one way to look at the situation: Although you wouldn't know it from
the rhetoric, federal taxes are already historically low as a share of
G.D.P. Once the new round of cuts takes effect, federal taxes will be lower
than their average during the Eisenhower administration. How, then, can the
government pay for Medicare and Medicaid — which didn't exist in the 1950's
— and Social Security, which will become far more expensive as the
population ages? (Defense spending has fallen compared with the economy, but
not that much, and it's on the rise again.)

The answer is that it can't. The government can borrow to make up the
difference as long as investors remain in denial, unable to believe that the
world's only superpower is turning into a banana republic. But at some point
bond markets will balk — they won't lend money to a government, even that of
the United States, if that government's debt is growing faster than its
revenues and there is no plausible story about how the budget will
eventually come under control.

At that point, either taxes will go up again, or programs that have become
fundamental to the American way of life will be gutted. We can be sure that
the right will do whatever it takes to preserve the Bush tax cuts — right
now the administration is even skimping on homeland security to save a few
dollars here and there. But balancing the books without tax increases will
require deep cuts where the money is: that is, in Medicaid, Medicare and
Social Security.

The pain of these benefit cuts will fall on the middle class and the poor,
while the tax cuts overwhelmingly favor the rich. For example, the tax cut
passed last week will raise the after-tax income of most people by less than
1 percent — not nearly enough to compensate them for the loss of benefits.
But people with incomes over $1 million per year will, on average, see their
after-tax income rise 4.4 percent.

The Financial Times suggests this is deliberate (and I agree): "For them,"
it says of those extreme Republicans, "undermining the multilateral
international order is not enough; long-held views on income distribution
also require radical revision."

How can this be happening? Most people, even most liberals, are complacent.
They don't realize how dire the fiscal outlook really is, and they don't
read what the ideologues write. They imagine that the Bush administration,
like the Reagan administration, will modify our system only at the edges,
that it won't destroy the social safety net built up over the past 70 years.

But the people now running America aren't conservatives: they're radicals
who want to do away with the social and economic system we have, and the
fiscal crisis they are concocting may give them the excuse they need. The
Financial Times, it seems, now understands what's going on, but when will
the public wake up?